Abstract

This is a short commentary on a judgment by the Supreme Court of Zimbabwe which held that reference to an award in Article 34 of the First Schedule to the Arbitration Act (Chapter 7:15) [hereinafter “Model Law”] is generic and does not only refer to the setting aside of final awards.[1] The decision raises a critical question: What awards can be set aside in terms of article 34 of the Model Law? 

THE FACTUAL MATRIX

RM Enterprises (Pvt) Ltd. (the second appellant) is a wholly-owned subsidiary of Rio-Zim Ltd (the first appellant). On the 19th January 2010, the first appellant and Maranatha Ferrochrome (Pvt) Ltd (the first respondent) entered into a Shareholders Agreement (the “Agreement”). In terms of the agreement, the first appellant was to ensure that 40% of issued shares in the second appellant would be transferred without cost to the first respondent so that the shareholding between the parties would be, Rio-Zim 60% and Maranatha 40%.

On the 29th January 2017, the first respondent wrote to the first appellant informing it of its breach of clause 1.1 of the agreement as it had failed to transfer chrome claims as agreed between the parties. The first respondent gave the first appellant notice that it would refer the dispute to an arbitrator if the first appellant failed to fulfill its obligations within thirty (30) days, pursuant to clause 30 of the agreement.

The parties agreed to refer the dispute to arbitration before the second respondent. Before the Arbitrator, the first appellant raised preliminary points objecting to the second respondent’s jurisdiction, questioning the validity of the agreement and arguing that the first respondent’s claim had prescribed because the cause on which the first respondent sued arose in 2010 and as such 3 years had lapsed. The second respondent ruled that he had jurisdiction to preside over the dispute and that the first respondent’s cause of action had not prescribed.

THE APPLICATION

Aggrieved by the second respondent’s decision, the appellants applied to the High Court (the court a quo) for an order setting aside the second respondent’s interim award in terms of Article 34(2) (b)(ii) of the Model Law which provides as follows:

ARTICLE 34

Application for setting aside as exclusive recourse against arbitral award 

….

(2) An arbitral award may be set aside by the High Court only if—

….

(b) the High Court finds, that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Zimbabwe; or

(ii) the award is in conflict with the public policy of Zimbabwe.[2] 

The first respondent opposed the application and raised two preliminary points to the effect that the appellants could not seek to set aside an interim award after a period of 30 days. It was argued that in terms of Article 16 (3), a party requesting the High Court to determine a matter of jurisdiction had thirty (30) days within which to apply for a determination of the arbitrator’s ruling. It was further submitted that the appellants had filed their application out of time. The court a quo upheld the preliminary points and dismissed the appellants’ application on that basis. It held that Article 34 was a procedure for the setting aside of a final award and not an interim award. It was further held that the award made by the second respondent was an interim award dismissing the first appellant’s Special Pleas and that such an award could not be set aside as it had not terminated the arbitral proceedings.

THE APPEAL

Aggrieved by the decision of the court a quo, the appellants appealed to the Supreme Court. The only issue for determination on appeal was whether or not the court a quo erred in dismissing the appellant’s application to set aside an arbitral award in terms of Article 34.

The appellants argued that the interim award made by the second respondent could be challenged on the basis of Article 34 as the interim award was final on the determination of the preliminary points raised by the appellants. The appellants also argued that they could not challenge the interim award in two applications, one under Article 16 on the point of jurisdiction and another under Article 34 on the point of prescription. They contended that the correct procedure was to bring one application under Article 34 to challenge both points and question whether or not the award was contrary to public policy.

Counsel for the first respondent argued that the wording of Article 34 does not extend to interim awards. He further argued that the appellants ought to have challenged the preliminary point under Article 16 (3) within thirty (30) days and that when they failed to do so, they sought to have a second bite of the cherry by employing the wrong procedure under Article 34.

THE JUDGMENT

WHETHER THE COURT A QUO ERRED IN DISMISSING THE APPELLANTS’ APPLICATION TO SET ASIDE AN ARBITRAL AWARD IN TERMS OF ARTICLE 34 OF THE MODEL LAW ON THE BASIS THAT THE APPLICATION HAD NOT BEEN PROPERLY PLACED BEFORE IT.

In determining this issue, the Supreme Court quite rightly referred to S 2 (3) of the Arbitration Act [Chapter 7:15] which provides that:

“The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model law and originating from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires to the Model Law, and, in interpreting the Model Law, regard shall be had to its international origin and to the desirability of achieving international uniformity in its interpretation  and application.”

Vis-à-vis the issue of jurisdiction and the validity of the arbitration agreement, the Supreme Court correctly noted that Article 16 (3) of the Model Law provides that an arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. The said Article 16 (3) refers to an arbitrator’s preliminary decision on jurisdiction as a ruling which it distinguished from a decision made at the termination of the proceedings which it refers to as an award. The arbitrator’s ruling is not an award.

The court correctly ruled that in challenging a ruling, the aggrieved party is entitled to approach the High Court in terms of Article 16 (3) within a period of thirty (30) days. Failure to do so within the stipulated time leaves the aggrieved party without any other recourse to the courts as Article 34 of the Model Law does not provide for the setting aside of the arbitrator’s ruling on jurisdiction. The Supreme Court’s finding on this point is in line with the internationally accepted overall interpretation adopted by other courts which have held that:

“If a party fails to appeal or decides not to appeal an award on jurisdiction, the award will be treated as final between the parties and the hearing on the merits will proceed on the basis (and not simply the assumption) that the tribunal has jurisdiction. Challenging such an award on jurisdictional grounds is thus excluded from the grounds which a party may invoke at the setting aside or enforcement stage if the party has chosen not to bring an appeal under Art 16(3) of the Model Law.”[3]

The Supreme Court correctly held that the application for setting aside of the arbitrator’s ruling on jurisdiction and the existence and validity of the arbitral agreement was a nullity. On the issue of prescription, the Supreme Court held that:

“the arbitrator’s finding on prescription can be classified as an interlocutory, interim or partial award. The court also held that the use of the word “award” in Article 34 is generic and accommodates all types of awards. The choice of the word” award” in Article 34 which is repeated in various parts of the article instead of the restrictive words” “final award” means the intention was to allow applications for the setting aside of other types of awards in terms of Article 34. The court a quo therefore erred when it held that only final awards can be set aside in terms of Article 34.”[4]

The Supreme Courtruled that the application for the setting aside of the arbitrator’s interlocutory award on prescription shall proceed to a hearing on the merits. It then remitted the case to the court a quo for it to hear and determine the application for the setting aside of the arbitrator’s interlocutory award on prescription on the merits.

CRITIQUE OF THE COURT’S FINDING ON AWARDS THAT CAN BE SET ASIDE IN TERMS OF ARTICLE 34 OF THE MODEL LAW

Section 2 (3) of the Arbitration Act [Chapter 7:15] provides that:

“The material to which an arbitral tribunal or a court may refer in interpreting this Act includes the documents relating to the Model Law and originating  from the United Nations Commission on International Trade Law, or its working group for the preparation of the Model Law, that is to say the travaux preparatoires  to  the Model Law, and, in interpreting the Model Law, regard should be had  to its international origin and to the desirability of achieving international uniformity in its interpretation and application.”

Whilst the Supreme Court was alive to the aforesaid, it did not in its judgment refer to the documents originating from the Working Group of the United Nations Commission on International Trade Law (“Working Group”). Had it done so, it would have noted that the Working Group was in agreement that it was desirable for the Model Law to define the term arbitral “award”, in particular for purposes of determining which kinds of decisions would be subject to recourse under Article 34. The Working Group considered the following proposal:

“award” means a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determine any question of substance or the question of its competence or any other question or procedure, but in the later case, only if the arbitral tribunal terms its decision an award.[5]

While there were wide support for the first part of the proposed definition, i.e. up to the word “substance,” serious concerns were expressed as regards the latter part, in particular the last portion referring to decisions on questions of procedure.[6] The Working Group noted that that a definition of “award” had important implications to a number of provisions of the Model Law and was of special relevance to the issues dealt with in Articles 34 and 16. Ultimately, the Working Group decided not to include a definition in the Model Law to be adopted by it given that there was not sufficient time for considering  these complex questions in depth. Nevertheless, the Working Group invited the Commission to consider the matter further.[7]

Had the Supreme Court given any consideration to the travaux preparatoire of the Working Group, the aforesaid, it would have noted that the Working Group was in agreement regarding the finality of an arbitral award. The Working Group agreed that an award is a final award which disposes of all issues submitted to the arbitral tribunal and any other decision of the arbitral tribunal which finally determines any question.

In sum, the word “award” in Article 34 is not generic and does not accommodate all types of awards – which are not final. An award is dispositive of all or some substantive issue(s) and is restricted to awards that are final in nature. As regards the meaning and nature of an ‘award’, Redfern and Hunter note that “[a]n arbitral tribunal pronounces numerous decisions during the course of its proceedings. These decisions are mainly divided into two categories: “Orders” and “Awards”. While an award deals with substantive issues which resolve the issues in dispute, an order resolves the procedural issues in dispute which play a secondary role in the arbitral process”[8] Other commentators have noted that, “[t]he widely accepted meaning of “award” is that it is the final decision by the arbitrators, dispositive of the issues in the case. Tribunals may issue “partial awards” or “interim awards’’ which also may be final and binding on the parties.”[9]

In conclusion, a “partial” or “interim” award will be “final” if it is dispositive of the issues it deals with. It is unfortunate that the Supreme Court, despite having the opportunity to do so, did not define the word “award”. This, coupled with the court’s finding that other types of awards which are not final awards can be set aside in terms of Article 34 will lead to confusion. Litigants are now likely to challenge any arbitral decision labelled as an “award” when in fact not every arbitral decision labelled as an “award” is actually an “award.” The French Supreme defines “award” as “decisions which are made by arbitrators which resolve in a definitive manner all or part of the dispute that is submitted to them on the merits, jurisdiction or a procedural matter which leads them to put an end to the proceedings.”[10] The Indian Supreme Court explained the characteristics of an award without defining the term. According to the Indian Supreme Court, an award has the following four characteristics: (i) An award is made by the arbitrators; (ii) An award resolves a dispute; (iii) An award is a binding decision; and (iv) An award may be partial.[11]

It is submitted that what made the Arbitrator’s decision on the issue of prescription susceptible to an Article 34 challenge was that while it was a partial award, it was also a final award on the issues it disposed of. It was the Arbitrator’s final determination on the issue of prescription and was dispositive of the issue. Partial awards or interim awards may be final and binding on the parties. An interim award is a temporary award that is granted until such time as the arbitral tribunal has rendered its final decision.[12] An interim award can also be final in as much as it decides on an issue finally. A partial award settles some elements of a dispute, or only part of the claims or cross claims which have been brought, while the parties have to continue arbitrating on the remaining issues. Significant consequences flow from a final award.  A final award is challengeable by the losing party, which may attempt to have it annulled or vacated under the law of the seat of arbitration.[13]

CONCLUSION: THE LACUNA IN THE JUDGMENT

As already noted, the Working Group attempted to define the term “award” but was unsuccessful.  While there was wide support for the first part of the proposed definition up to the word “substance,” serious concerns were raised as regards the latter part with the result that the term “award” was left undefined. Ultimately, the role of defining what an award is or is not was left to national courts. The High Court has held that an award as envisaged in Article 34 of the Model Law must meet one or more of the following criteria:[14]

(a)it must be a final award;

(b)   be the instrument by which the tribunal records its decision on arbitration;

(c)be a final settlement of the matters contained in it;

(d)   considers and disposes of all the issues submitted for arbitration;

(e)finally determines any question of substance or of competence or of procedure;

(f)in the case of procedural questions, the arbitrator must term it an award and;

(g)   the award must have the effect of res judicata in respect of what is contained in it

The Supreme Court should have given guidance on what an award is for purposes of Article 34. It should have done so with reference to the deliberations of the Working Group as well as international decisions from other relevant jurisdictions. The High Court, arbitration practitioners, academics and law students need this guidance. The Supreme Court did not help matters by holding that the word “award” is generic and accommodates all types of awards. It also did not help matters by holding that Article 34 allows for the setting aside of not just final awards but other types of awards. Ultimately, it is submitted that the Supreme Court should have made it clear that the term award should generally be reserved for decisions that finally determine the substantive issues with which they deal.[15]

* Partner, Kanokanga & Partners Law Firm. Harare, Zimbabwe.

[1] Arbitration Act (Chapter 7:15), available at: https://www.law.co.zw/download/1656/

[2] Emphasis added.

[3] Astro Nusantara International BV v PT Ayunda Prima Mitra [2012] SGHC 212 para 151

[4] Ibid

[5] A/CN.9/246 para 192.

[6] Ibid para 193

[7] Ibid para 194

[8] N Blackaby et al, Redfern and Hunter on International Arbitration (6 ed) (Oxford, 2015) 501-68.

[9] ML Moses, The Principles and Practice of International Commercial Arbitration (2 ed) (Cambridge University Press, 2013) 189. 

[10] Group Antoine Tabet v Republic du Congo [2102] Rev Arb.

[11] M/S Centrotrade Minerals and Metal Inc v. Hindustan Copper Ltd., AIR 2017 SC 185, para 11.